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FOX v. MERRILL LYNCH & CO.

June 28, 1978

JAMES E. FOX, Plaintiff,
v.
MERRILL LYNCH & CO., INC. and MERRILL LYNCH, PIERCE, FENNER & SMITH, INCORPORATED, Defendants.



The opinion of the court was delivered by: POLLACK

MILTON POLLACK, District Judge

This is a motion by defendants for a stay of this lawsuit pending an arbitration which has been demanded by defendants.

 In this action, plaintiff James E. Fox seeks damages on account of the determination by defendant Merrill Lynch, Pierce, Fenner & Smith, Inc. (Merrill Lynch) that Fox has forfeited his right to a pension from Merrill Lynch. Defendants' application for a stay is made pursuant to 9 U.S.C. § 3. Arbitration of the dispute is sought under an agreement that disputes of the parties should be settled in accordance with Rule 347 of the New York Stock Exchange (NYSE). Plaintiff opposes the motion on the grounds, inter alia, that he is not bound by any agreement to arbitrate and that law and public policy forbid compelling him to arbitrate certain of the claims asserted herein.

 For the reasons hereafter set forth, the aspects of this controversy which are appropriate for arbitration are severable from and predominate over the non-arbitrable claims. Accordingly, in the interests of economy and justice, a stay will be granted to permit arbitration of the arbitrable claims before consideration of the remainder.

 Defendant Merrill Lynch is a broker-dealer and a member of the NYSE. *fn1" / It employed Fox for 18 years approximately from 1955 until 1973, primarily as an institutional salesman. The company instituted an employee pension plan in 1959. As amended through 1973, this provided that employees who remained with Merrill Lynch until after the age of forty and had participated in the plan for at least ten years were entitled to a pension upon reaching the age of forty-five. Fox participated in the plan from 1959 onward and when he reached forty years of age in 1972 he had met the minimum ten year employment requirement and would have been entitled upon his forty-fifth birthday in 1977 to a pension under the plan.

 The plan also provided, however:

 A participant who enters employment or engages directly or indirectly in any business deemed by the [Administrative] Committee to be competitive with the business of any Employer or any Subsidiary shall forfeit all rights to any benefits due or to become due from the Trust Fund, other than those attributable to Voluntary Contributions.

 Fox left Merrill Lynch voluntarily in 1973 to take employment as a branch manager with two other stockbrokerage firms, first Clark Dodge & Co. and then Dean Witter & Co. In 1975, the Administrative Committee advised him that his prospective benefits under the Pension Plan had been forfeited on account of his employment with competing firms.

 Fox instituted this suit on November 29, 1977. His complaint alleges that the forfeiture of his pension benefits was inconsistent with the terms of the plan. He complains further that Merrill Lynch failed to warn him of the possibility of such a forfeiture when, before leaving the company in 1973, he discussed the possibility of accepting employment with Clark Dodge & Co., or in 1974 when he inquired concerning his pension shortly before accepting the position at Dean Witter & Co.

 The first two counts of Fox's amended complaint allege that defendants breached their contractual obligations under the pension plan. In Count One the claimed contractual breach is posited on the Employee Retirement Income Security Act, 29 U.S.C. § 1001 et seq. (ERISA). In counts three and four, by way of anticipation Fox alleges that defendants have waived and are estopped from relying on the plan's forfeiture provision. The several remaining counts of the complaint set forth non-contractual theories opposing arbitration, primarily that the forfeiture constitutes a restraint of trade in violation of state and federal antitrust laws.

 The Court's jurisdiction is alleged to rest on the grounds that the action arises under ERISA, as well as diversity of citizenship and requisite amount in controversy.

 Fox's alleged agreement to arbitrate disputes arises from his employment agreement with Merrill Lynch which incorporates therein the Rules of the NYSE. That constitutes a provision in "a contract evidencing a transaction involving commerce," 9 U.S.C. § 2. Dickstein v. DuPont, 443 F.2d 783, 784-85 (1st Cir. 1971). Accordingly, federal law governs all questions regarding the interpretation, validity and enforceability of the arbitration agreement. Coenen v. R. W. Pressprich & Co., 453 F.2d 1209, 1211 (2d Cir.), cert. denied, 406 U.S. 949, 32 L. Ed. 2d 337, 92 S. Ct. 2045 (1972). Issues concerning the validity and enforceability of an asserted arbitration agreement properly are determined upon a motion to stay pursuant to 9 U.S.C. § 3. See American Safety Equipment Corp. v. J. P. Maguire & Co., 391 F.2d 821, 826 (2d Cir. 1968).

 Fox agreed to arbitrate the contractual dispute he asserts. In 1957, Fox and Merrill Lynch applied for and obtained the NYSE's approval for the company to employ Fox as a registered representative. In the application, Fox agreed

 to abide by the Constitution and Rules of the Board of Governors of the New York Stock Exchange as the same have been or shall be from time to time amended, and by all the rules and regulations adopted pursuant to the Constitution, ...


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